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Unformatted text preview: Added together, MVC and MFC are equal to MC, but since MFC is 0, the marginal cost is equal to the marginal variable cost: MVC + MFC = MC MVC + 0 = MC MVC = MC If we can combine a firm's costs and revenues, we can calculate the firm's profits. Using the variables we have been working with, we can represent profit as: Profit = TR - TC TR - TC = q(AR - AC) = q(P - AC) Profit = q(P - AC) Firms will try and maximize their profits, since it is through increasing profits that firms increase their utility. To maximize profits, firms will choose to sell the quantity at which the marginal cost is equal to the marginal revenue. Why is this true? If MC were greater than MR, then the firm would be losing money for each additional unit of product. If MR were greater than MC, the firm would be losing out on extra profit by not making another...
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This note was uploaded on 12/13/2011 for the course ECO 1320 taught by Professor Staff during the Fall '11 term at Texas State.
- Fall '11